27 July 2011

ECON Committee published draft report on Omnibus II

The Committee of Economic and Monetary Affairs of the European Parliament has released its draft report on Omnibus II, with the proposal that the full requirements of Solvency II should not be implemented until 1 January 2014.

Amendments to the Solvency II Directive

1. Illiquidity Premium in Article 77a in connection with Article 86

The Commission proposal foresees the inclusion of an illiquidity premium in the risk-free interest rate term structure, when EIOPA observes a period of stressed market liquidity. The rapporteur regrets that the Commission did not specify the application of such a premium, leaving important policy choices at the level of delegated acts. From the rapporteur's point of view, EIOPA should play an important role in developing a formula, which identifies the size of the illiquidity premium. The rapporteur suggests a threshold in order to avoid that very small percentages, which might represent market anomalies or measurement errors, are taken into account. EIOPA should also help in identifying substantially illiquid liabilities to further define the scope of the illiquidity premium. It should be up to the Member States to decide on the use of a premium, thus enabling them to apply a more stringent regime in the calculation of technical provisions.

In the light of the Council discussions, the Commission adapted the proposal of an illiquidity premium and replaced it by a countercyclical premium and a matching premium. The adaptation was not formally addressed to the European Parliament. The rapporteur decided to concentrate on the revision of the original Commission proposal, also taking into account that the illiquidity premium is the only premium concept that was already tested in the 5th

Quantitative Impact Study

2. Standard formula in Article 109a in connection with Article 111

The Commission proposed that EIOPA provides harmonised technical inputs to the standard formula. In the Commission's view this includes an EIOPA assessment on the eligibility of external credit assessment institutions. The rapporteur suggests clarifications to avoid an overlap with the CRA Regulation and to enhance consistency with CRD. The Joint Committee should play a leading role in order to prevent the ESAs from taking different views vis-à-vis the same external credit assessment institution.

3. Exceptional fall in financial markets in Article 138 in connection with Article 143

In the event of an exceptional fall of financial markets the recovery period for insurance and reinsurance undertakings not complying with the SCR may be prolonged. The rapporteur appreciates that the Commission now proposes a definition of exceptional fall in financial markets. Clarification should be made that EIOPA determines the exceptional fall not only at request, but also on its own initiative. The rapporteur adds a consultation procedure with the ESRB.

4. Equivalence of third-country supervisory regimes

Solvency II provides for equivalence decisions in Articles 172, 227 and 260. The Commission suggests suspending the implications of a negative equivalence decision for a period of five years.

The rapporteur defines the criteria to be fulfilled for a 5-year-period of temporary equivalence. The decision on temporary equivalence is taken by the Commission with the assistance of EIOPA. Relevant third countries should be obliged to hand in progress reports every six months. For reasons of transparency, EIOPA should publish a list of third countries which are assessed equivalent and temporary equivalent.

Full report

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